During the late 1990s and early 2000s, Chilean economists Sergio de Castro and Ernesto Fontaine traveled the world explaining how their neoliberal economic policies helped write what’s often described as one the biggest success stories in South American politics. That story goes as follows.

After the start of the Cold War, the US government facilitated a partnership between the University of Chicago and Pontificia Universidad Católica de Chile in Santiago. By exposing students like Fontaine and De Castro to the pro-market worldviews of Chicago’s renowned faculty — including Milton Friedman and Arnold Harberger — Washington hoped to steer Chile from communism toward capitalism.

This partnership came at an opportune moment for both parties. While the first generation of “Chicago Boys” — as the Chileans who visited Hyde Park became known — adapted Católica’s curriculum to the American model, Chile’s economy was falling apart.

A cocktail of price controls, nationalizations, and money printing served up by socialist president Salvador Allende translated into a 35 percent drop in wages and an inflation rate of 700 percent — numbers that compelled the general Augusto Pinochet to stage an unexpected but successful coup.

Enlisted by the newly formed military junta, the Chicago Boys were tasked with undoing the damage Allende had wrought. Applying what they had learned abroad, they freed up prices and interest rates, reprivatized state-owned businesses, deregulated the banking system, and lowered import tariffs.

The results, they say, speak for themselves. With setbacks, Chile emerged from the experiment as the wealthiest nation in all South America. A veritable “Latin tiger,” it had the highest GDP per capita as well as the lowest poverty rate, not to mention the best indicators for health, education, and life expectancy.

Accusations that Chile’s economic growth rests on an “original sin,” on the backing of a dictatorship that executed an estimated 2,279 people in just seventeen years, that slit the throats of opposition leaders and dumped their bodies in the Pacific Ocean, fail to acknowledge that the Chicago Boys’ extensive, drastic reforms could not have been implemented in a free society. Regardless of its origin, their neoliberal system proved so effective that the democratically elected statesmen who succeeded Pinochet didn’t just retain but expanded it.

“Our Chicago boys,” George Shultz, former secretary of state and dean of UChicago’s Booth School of Business, said in a 2020 interview, “produced the only really good economy in Latin America in the 1980s; it was sensational.”

This success story, decades in the making, took an unexpected turn in 2019, when violent demonstrations sparked by a 30-peso (USD$0.40) increase in Santiago’s subway fare called for an end to corporate abuse, for-profit schooling, and low pensions — problems that protesters, through slogans and graffiti, traced back to neoliberalism and to the Chicago Boys.

The demonstrations came as a surprise to many politicians and business owners, who wondered how civil unrest could arise in a country that, by traditional measurements, had experienced such an extraordinary amount of economic growth for such an extended period of time. Rumors spread about agitators sent by Cuba and Venezuela.

Sebastián Edwards, a Chilean economist who visited Santiago during the 2019 demonstrations, looked elsewhere for answers. His book The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism argues Chile’s well-to-do have long ignored warnings that their prosperity was built not just on sin, but “a social powder keg.”

Edwards studied at the Universidad de Chile, which rejected the partnership UChicago extended to Católica. A student activist affiliated with Allende’s Partido Socialista de Chile, he emigrated to the United States after Pinochet took power. Though he befriended Harberger at UChicago, he was never considered a member of the Chicago Boys.

The Chile Project follows the Chicago Boys from their training at Hyde Park to their employment in the Chilean government. Instruction from Harberger, Friedman, Gary Becker, and Theodore Schultz imparted a dedication to open, largely unregulated economies. Instead of reducing inequality, they were taught to alleviate extreme poverty with social programs. The former, according to Chicago Boy Rolf Lüders, head of conglomerate Banco Hipotecario de Chile Group, was merely “an envy problem.”

The Chicago Boys entered the political sphere when De Castro, their most senior member, was appointed advisor to economics minister Rodolfo González following Pinochet’s coup in 1973. De Castro presented a development plan written by him and his peers. Nicknamed El Ladrillo, or “The Brick,” for its size, its language was that of trade liberalization and decentralized planning.

In retrospect, Edwards is not impressed by the purportedly unprecedented economic development that took place under the dictatorship, a time when the benefits of a growing GDP were mitigated by unemployment and inflation, and a decline in poverty was offset by a rise in equality. A large part of The Chile Project is devoted to acknowledging the often-overlooked mistakes and sacrifices made during this period.

For instance, in 1975, persistent inflation — 350 percent per year — compelled Pinochet to accept Milton Friedman’s advice to implement a “shock treatment” that would restabilize prices at the cost of (temporarily) increasing unemployment. The spike, which Milton originally believed would last a couple of months, continued until the mid-’80s.

Around the same time, the Chilean government allowed interest rates, which Allende had kept low, to rise, prompting banks to borrow money internationally. While the Chicago Boys thought the resulting deficits would invigorate the economy, many financial institutions — only recently reprivatized — had to be bailed out at the taxpayer’s expense.

Far from saving Chile, the neoliberal worldview of the Chicago Boys had to be modified in order to avert financial crisis. Whereas older-generation “dogmatists” like De Castro insisted on a fixed exchange rate, younger-generation pragmatists or “flexibles” like José Piñera and Juan Andrés Fontaine settled on floating rates that, though in conflict with their UChicago training, ultimately helped the Chilean economy get back on track.

In 1988, after 56 percent of Chileans voted against the continuation of the Pinochet regime, elections were held for the presidency and Congress. In chapters devoted to the transition from dictatorship to democracy, Edwards challenges the notion that subsequent leaders unconditionally embraced the neoliberal system they inherited.

Some elements of this system were preserved. In response to the 1998 Russian financial crisis, Eduardo Aninat, finance minister of the center-left president Eduardo Frei Ruiz-Tagle, opened up the country to international capital movements, sending it into “a Milton Friedman type of world” where the value of the currency was determined by supply and demand without government intervention.

Other elements were discarded. Following Pinochet’s ousting, President Patricio Aylwin modified the Plan Laboral, a 1979 labor law put together by Chicago Boy José Piñera that regulated and greatly reduced the historical power of workers’ unions, preventing them from negotiating at industry and national levels while simultaneously permitting businesses to impose lockouts and lay off employees.

Edwards identifies a number of sources for the civil unrest that reached a boiling point in 2019, one of which is higher education. Decentralized and reprivatized by the Chicago Boys, Chile’s universities left many graduates unemployed and in debt. “Scores of young men and women,” Edwards writes,

felt cheated and began to question a system that had promised them and their families that if they worked hard and became educated — that is, if they accumulated “human capital” — they could get ahead and move decisively into the comfortable ranks of the professional and managerial classes.

Another source for the unrest is Chile’s lack of upward mobility, especially among racial minorities. Edwards mentions how Harberger, during a 1955 visit to a Chilean gentlemen’s club, was met with incredulous laughter when he asked how many of its members were the children of inquilinos — farmworkers in service of landlords. When Harberger followed up and asked this question after the turn of the century, he was encountered with the same response.

Chilean families who did manage to escape from poverty lived in constant fear of sliding back. The country’s nascent middle class, situated just above the poverty line, was as vast as it was fragile. Ineligible for targeted social programs, the slightest misfortune — illness or accident or otherwise — had the potential to erase their hard-earned progress.

All these fears, insecurities, and frustrations coalesced into what Edwards and other commentators refer to as a malaise or malestar. Brewing since at least the early 2000s, Chile’s malestar is not just about income distribution, but also the emotions associated with it. It’s about the relationship between blue-collar workers and elites, about the shame and humiliation that capitalism connects to poverty. For this reason, the concept of dignity (dignidad) played a prominent role during the 2019 demonstrations.

Those demonstrations proved so persistent that the Chilean government resolved to fundamentally change the country’s social contract. A convention was called to draft a new constitution that would replace the one introduced under Pinochet. Delayed until 2021 by the coronavirus pandemic, the convention — led by Chile’s current president Gabriel Boric and largely comprised of political outsiders — produced a draft that, if approved, would have replaced the neoliberal infrastructure championed by the Chicago Boys with a social democratic order like those found in Scandinavia and northwestern Europe.

Though this document was rejected, the support required to put it on the agenda remains indicative of how deep opposition to the neoliberal miracle of the Chicago Boys runs in Chile.

A new convention has now started working on a second draft. This convention, dominated by the traditional right and far-right politicians, guided by conservative constitutional scholars, economists, lawyers, and other technocrats, stands poised to produce a much less progressive and in some ways regressive charter for the country. Though there is mass support for closing the page on the Pinochet era, the Chilean left currently lacks the unity and coordination to oppose the Right as effectively as the Right has opposed it.